The MBI And You

In this issue, we introduce a new monthly column called “By The Numbers.” The column, written by Steven R. Kline, Jr., will usually start with a very significant number. It’s what Steve, who is our parent company’s market analyst, calls the Metalworking Business Index (MBI) reading. If the number is over 50, that means the overall metalworking industry is expanding. If the number is under 50, the industry is contracting. In an expanding market, individual metalworking companies are likely to see orders for durable goods going up, production levels rising, more workers being hired, more deliveries from suppliers coming in and so on. In a contracting market, these numbers are likely to be going down. Usually, companies see both rising and falling numbers, so it is hard to tell what the overall trend is.

The MBI works in much the same way as the more familiar Purchasing Manager’s Index, which is also based on a turning point of 50. Whereas the PMI covers all of manufacturing, the MBI focuses more narrowly on the metalworking industry. The MBI is based on changes reported by participating companies who are surveyed by e-mail each month. The MBI is what analysts call a diffusion index, that is, it detects a general tendency among a number of more specific measures that change over time, even though these changes often go in opposite directions from one another at rates that speed up and slow down.

So what does this number mean to you? One monthly reading doesn’t necessarily mean a whole lot. Following this number month after month, however, will give you a pretty good picture of how our industry is doing—just at a glance. Moreover, Steve’s interpretation of the results each month put the current reading into perspective. To get a sense of the direction that trends have been taking for awhile, you can examine MBI readings from the past at the Web site given at the top of Steve’s column.

This Web site will also link you to more detailed forecasts about specific industries, such as aerospace, medical, oil and others. Tracking the MBI and examining these online forecasting tools will help you understand the changes in market conditions that your company may be experiencing. It’s good to know, for example, how a change in your customer order levels compares to what other companies are reporting. Seeing that certain market segments look more promising than others is also valuable. This body of timely data may help you evaluate the risks and opportunities associated with pending business decisions.

Finally, I encourage you to consider Steve’s invitation to contact him about participating in the MBI survey. Being part of the survey will make the MBI and the data behind it even more relevant.